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On March 31, on a cold day in New York’s west midtown, Duncan Aldred, head of General Motors’ GMC brand, outlined a plan that would have seemed unthinkable as little as a year previously. Mr Aldred announced that GM planned to boost the US market share of GMC — which produces only premium-quality sports utility vehicles and pick-up trucks — from 3 per cent to 5 per cent over the coming 10 years.
The brand has outstripped the growth of every other GM brand in the US over the year, posting growth of 12.5 per cent for the year to the end of October, against a 5.3 per cent average for the company as a whole.
GMC is one of the most obvious beneficiaries of a series of changes across transport markets that have followed the sharp fall in the price of oil from a peak of $112 a barrel of Brent crude in June 2014 to about $45 at the end of November this year.
The fall has revived sales of sports utility vehicles and pick-up trucks, raised speculation that airlines might cool on orders for more fuel-efficient aircraft and led to rumours that shipping lines might end speed reductions brought in to save fuel when prices were high.
The US auto market — where the relatively low taxes on fuel mean that changes in the underlying oil price create especially high volatility in pump prices — has demonstrated some of the most dramatic changes.
According to Michael Sivak and Brandon Schoettle of the University of Michigan’s Sustainable Worldwide Transportation project, the average fuel economy of new vehicles sold in the US has slipped by 0.8 miles per US gallon — 3 per cent — from a peak of 25.8 mpg reached in August 2014, shortly after fuel prices started falling. The decline reflects a jump over the same period in the market share of three types of relatively fuel-hungry vehicles — compact SUVs, whose market share has risen 2.9 percentage points to 29.6 per cent, pick-up trucks, which are up 0.6 of a point to 14 per cent and large SUVs, up 0.1 points to 7.1 per cent.
Mr Aldred insisted, after announcing the plans for GMC’s growth, that the company could succeed even if recent fuel price declines were reversed. “Really the GMC success story is . . . five successive years of growth,” he told reporters after the announcement.
However, there is little doubt the unexpected oil price fall has produced big changes in auto markets that were, after the economic crisis and fuel-price spike, expected to shift towards smaller, more fuel-efficient vehicles and new, less oil-hungry propulsion systems.
Bill Fay, head of the core Toyota brand in the US for Japan’s Toyota Corporation, insists that his company — the pioneer in fuel-efficient hybrid technology with the Toyota Prius — is continuing to invest in more fuel-efficient technology. But he adds that the company is building many more of its RAV4 and Highlander SUVs than previously and as many pick-up trucks as it possibly can.
“I do think every manufacturer is working toward making adjustments in their products and production to meet the current consumer demand,” he says.
Yet, while consumer sentiment has been quick to change in response to the oil price change, the latest versions of Ford’s F150 pick-up truck, the US’s best-selling vehicle, show that companies’ reaction to the change continues to be far more cautious. Ford brought a revolutionary, aluminium-bodied version of the truck — 13 per cent lighter than its predecessor — to the market late in 2014, just as the oil price plunged.
Ford’s move illustrates how, while manufacturers are adjusting their launch schedules to reflect changing consumer demand, many decisions about products just coming to market were made while prices were still high. Companies are also cautious about assuming that oil prices — which have fallen unexpectedly — will not be subject to a rapid, unforeseen increase.
Caution about the duration of the oil price fall may be one reason why airlines are mainly currently sticking by the vast orders for new, more fuel-efficient aircraft placed in recent years — although most are holding off ordering new aircraft. Ship owners are mostly continuing the practice introduced during the oil price spike of sailing ships far more slowly to save fuel — although crude oil tankers, for which rates are high, are starting to run faster.
Mark Reuss, head of product development for General Motors, says there is a mismatch between long-term, capital-intensive product development timescales and fast-changing fuel costs. “It’s hard to plan a product portfolio on gas prices,” he says.
The challenge for automakers and builders of aircraft, ships and trains, meanwhile, is that oil prices are only a part of what influences their products’ design. There are also regulatory pressures, including, in the US, the requirement that automakers more than double their new vehicles’ average fuel efficiency between 2012 and the 2025 model year, which goes on sale in 2024. For example, under state regulations, automakers selling vehicles in California are effectively required to offer some plug-in hybrid vehicles — those with a normal engine but which normally run on electric power — or battery-electric vehicles.
Mr Reuss says GM remains “deeply committed” to such vehicles — including the Chevrolet Bolt, an electric vehicle that he and others hope will transform perceptions of the technology, whatever future oil price movements.
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